Labour has elected its leader for the first time in 16 years. If the interval feels somehow shorter, it is because competition for the top job hardly ceased, even though no ballot was held.

Gordon Brown agitated constantly against Tony Blair. His own reign was then punctuated with plots and coups.

The last Labour government descended into unseemly political soap opera before crashing, disunited, out of office. The party will have to present a more dignified spectacle to the public if it is ever to be released from opposition.

The fact that Ed Miliband has been chosen in open electoral combat creates an opportunity for old feuds now to be buried, while the defeat of his older brother by the narrowest of margins creates the potential for a new one. But both men seem determined not to let sibling rivalry jeopardise party unity.

The differences between them were, in any case, much exaggerated during the campaign. The candidates' need for definition in a crowded field, and the media's appetite for a simple story, gave rise to a facile caricature of the new leader as a reactionary leftist. Jettisoning the "Red Ed" label is an early priority.

That task will be made harder by the complex electoral arithmetic that means Ed Miliband owes his victory substantially to support from the trade unions. Being preferred by the unions does not necessarily mean the new leader will take policy dictation from them, but Mr Miliband must quickly establish an account of how the relationship will work. He must address the grievances of organised labour in a way that also resonates with a much wider audience. It is a goal that has generally eluded Labour leaders since the 1970s.

Another reason Mr Miliband's enemies colour him red has been his willingness to criticise Britain's model of high-octane, laissez-faire capitalism. He campaigned on the need for a less volatile, less ruthless system, one in which the power of the market is harnessed more firmly to the goals of social equity and a fairer distribution of wealth.

That might sound like Marxist dogma to some Tory ears, but it can just as easily be construed as a sensible response to the financial crisis. The credit crunch laid bare for the public how the old way of doing things disproportionately benefited a tiny financial elite. Nor has it escaped anyone's notice that the people whose reckless gambles brought the nation to the brink of ruin were then rewarded with taxpayers' money.

Ed Miliband's critique of capitalism is not far removed from the one offered by Liberal Democrat business secretary Vince Cable last week. As Roy Hattersley argues in today's Observer, far from being an electoral liability, a Labour party led by someone able to express, with persuasive moral urgency, the need for a new economic model could have broad appeal.

But only if it is fiscally credible. Labour needs to outline its strategy for the deficit. It must be distinct from the coalition's push for extreme austerity without neglecting voter anxiety about the state of the public finances.

The party has so far relied on arguments about the foolishness of premature cuts that might jeopardise recovery. But even if that is sound economic analysis, it ignores the political impact of the coalition's version of events: Labour squandered all of the boom-time money on inefficient expansion of the state. Reversing that process might be painful, say Lib Dems and Tories, but it is the only responsible path.

Labour might get a short-term boost in the polls by resisting every cut. But to be trusted in government again the party needs a more sophisticated response to the coalition's tale of a bloated state. It must accept that in government it reached the limits of what can be achieved by cascading money down from Whitehall and ordering public servants to effect social change.

In that respect, the victorious Miliband should listen to his brother. David's analysis of how Labour lost the trust of voters even as it spent money on their behalf is vital in understanding what happened in May.

Ed Miliband has already heeded David's advice in one key respect. In his leadership acceptance speech yesterday, he adopted his brother's more nuanced approach to the coalition, suggesting he would eschew the politics of tribal belligerence.

That ambition will be tested in next year's referendum on electoral reform. Sections of the Labour party will want to sabotage that poll in order to destabilise the coalition. But the party would soon regret being seen to obstruct, out of sheer opportunism, a policy it backed in its election manifesto.

That doesn't mean Labour should be planning for coalition talks in 2015. But the public has responded to the sight of leaders from rival parties working amicably in government. Mr Miliband is wise to hint that he, too, is capable of collegiality.

He should go further. Having won the leadership on terms that gave comfort to the party's core support, he must show he is capable also of challenging its preconceptions and checking its tendency to ideological complacency. That does not mean needlessly antagonising his union supporters with postures aimed at appealing to conservatives. An air of principled authenticity is his greatest asset.

But he will at some stage have to tell his party things it doesn't want to hear. Restoring Labour's reputation for economic competence depends on the leader proving he is able to make difficult choices. The facts of this parliamentary term are that budget conditions are tight, the United Kingdom can no longer rely on revenue from the financial services industry to fund public services, nor an endless supply of easy credit to satisfy consumer appetites.

The country has already embarked on the path to a different kind of economy. The coalition has a clearly defined approach to how that transition should be handled. Labour does not. The millions of voters who rejected the party in May are unlikely to pay serious attention until that changes.

Ed Miliband won the Labour leadership with a powerful critique of the old economy, the one that led us into financial crisis. He now needs a plausible account of the new economy Labour would build in its place. And this time he must sell it not just to Labour members, but to an altogether more sceptical audience.

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